Oil futures add to losses as fiscal cliff nears

LOS ANGELES (MarketWatch) — Crude futures slipped Monday, extending losses on uncertainty over whether Washington will reach a deal to avert automatic tax increases and spending cuts before the end of the year.

Oil for February delivery
CLG3, +0.00%
shed 5 cents, or 0.1%, to settle at $88.61 a barrel on the New York Mercantile Exchange. Trading in energy products closed early, ahead of the Christmas holiday on Tuesday. On Friday, the barrel price dropped 1.6%.

Friday’s losses for oil came after a botched attempt by House Republicans to pass a “Plan B” bill for averting fiscal-cliff tax hikes. The failed effort appeared to lower the prospects for a bipartisan deal to protect the U.S. economy from the austerity measures slated to take effect at the start of the new year. Read: Oil drops below $89, but notches weekly win.

Economists have warned that the United States will likely slip into recession if the economy is hit by roughly $600 billion in tax increases and spending cuts.

Last week, the Commerce Department revised higher third-quarter growth to a seasonally adjusted annual rate of 3.1%. Jason Schenker, president of Prestige Economics, wrote to clients Sunday that the economy is poised for upside potential in 2013, but that ”this is not yet priced in, since market participants have been forced to price in the extremely bearish risks of the fiscal cliff.”

Schenker said he continues to “believe that a deal will get done and we will not go into recession next year, but we are running out of time,” and that Congress “will have to work quickly to avoid going over the fiscal cliff.”

Citi Futures analysts wrote Friday that any solution to the cliff is unlikely to affect the actual supply-and-demand dynamics in the U.S. energy market. “We don’t think a fiscal deal would put physical-petroleum demand on a much different path, [and] the price reaction has far more to do with investor appetite for risk than actual oil consumption,” they said.

Natural-gas futures also moved lower on Monday, with the January contract
US:NGF13
down 10 cents, or 3%, to close at $3.35 per million British thermal units.

January heating oil
US:HOF3
dropped 2 cents, or 0.7%, to $3 a gallon but January gasoline
US:RBF3
turned higher, trading up 2 cents to settle at $2.75 a gallon.

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